NEW YORK: FTX received court approval for its bankruptcy plan on Monday. This will allow the company to fully repay its customers using the $16 billion in assets it recovered after the collapse of the once-powerful cryptocurrency exchange.
U.S. Bankruptcy Court Judge John Dorsey approved the downsizing plan at a court hearing in Wilmington, Delaware, saying FTX's success reflects “how it deals with the highly complex Chapter 11 bankruptcy process.” It became a model case for what to do.”
The plan builds on a series of settlements with FTX customers and creditors, U.S. government agencies, and liquidators appointed to wind down FTX's operations outside the United States.
The settlement will allow FTX to first use its own assets to repay crypto exchange customers before paying potentially competing claims brought by government regulators. FTX plans to repay 98% of its customers (customers who held $50,000 or less on the exchange) within 60 days.
FTX, once the world's leading cryptocurrency exchange, was hit by news that founder Sam Bankman Fried had accepted customer funds to pay off risky bets made by his hedge fund, Alameda Research. After surfacing, it collapsed. Bankman Freed was sentenced to 25 years in prison in March for stealing from FTX customers, and is appealing his conviction.
FTX's plan is to pay customers at least 118% of their account value as of November 2022, the date the company filed for bankruptcy.
FTX said the result was a victory for creditors, made possible by its ability to recover cash and crypto assets that went missing during the company's chaotic bankruptcy. The company also raised additional funds by selling other assets, including investments in technology companies such as artificial intelligence startup Anthropic.
“Today’s outcome was only possible thanks to the experience and tireless efforts of the team of experts who supported this case. They rebuilt FTX’s books from scratch and from there consolidated assets worldwide. We have recovered billions of dollars through this process,” said FTX CEO John. Ray said in a statement Monday.
Customer reaction to the plan was mixed, with many expressing disappointment that FTX's demise meant they missed out on a strong recovery in crypto prices after the market bottomed out in 2022. Some customers opposed the plan and were demanding higher repayments reflecting recent developments in the value of the cryptocurrency.
For example, the price of Bitcoin has risen from $16,000 in November 2022 to more than $63,000, said attorney David Adler, who is representing the four opposing creditors. Adler said customers who deposited their bitcoins on FTX's exchanges are finding it difficult to accept FTX's claim that they will receive a 100 percent payback based on the low price from two years ago.
FTX stated that it is not possible to simply return the crypto assets deposited by customers as their assets are no longer being appropriated by Bankman Freed.
At the time of the bankruptcy filing, FTX.com only held 0.1% of the Bitcoin that customers believed they had deposited on the exchange, the company said. Steve Caverick, one of FTX's financial advisors, said Monday that buying billions in crypto assets on the open market to repay customers in the same type of cryptocurrencies they held before the bankruptcy was “unlikely.” He testified that it would be “prohibitively expensive.”